Gig economy: Entrepreneurs need not apply

ANN ARBOR—The public response to the sharing economy such as ride-sharing platforms has become increasingly vitriolic over the last few years with protests emerging from Philadelphia to Paris.

Wanting to gauge how the platforms in the $26 billion global sharing economy were affecting local labor markets, researchers from the University of Michigan, the University of Minnesota and Temple University examined how gig-economy platforms influence local entrepreneurial activity.

Seth Carnahan, assistant professor of strategy at Michigan’s Ross School of Business, said the group measured the entrepreneurial activity by the volume of Kickstarter campaigns launched in the region. His co-authors are Gordon Burtch at Minnesota and Brad Greenwood at Temple.

They found that Kickstarter campaign launches decline by nearly 14 percent roughly 12 months after Uber X enters a local area. They also found that this effect was primarily attributable to the exit of lower-quality entrepreneurs, or those individuals whose businesses were more likely to fail.

Their conclusion: The gig economy substitutes for lower-quality entrepreneurial activity by providing a more stable employment option for the unemployed and underemployed. Even more strikingly, when they replicated their analysis with the courier service Postmates, they observed nearly identical results.

The researchers examined the relationship between Kickstarter campaign launches and the entry of Uber/Postmates over a 21-month period between 2013 and 2015.

Carnahan said they selected this data because “this measure is quick to respond to changes in markets, and offers researchers immediate visibility into both campaign and funding dynamics in the marketplace, unlike more slowly moving metrics like patenting or firm founding.”

The authors also claim that there are implications for crowdfunding platforms like Kickstarter, as gig-economy “platforms appear to help separate wheat from chaff,” thereby reducing ‘noise’ in the crowdfunding marketplace. This is important because it increases the quality of the average campaign on Kickstarter.